Home Loans to Poor Rose in '90s

Housing: Lending to low-income and minorities jumped in part because of anti-redlining law, a Treasury study finds.

WASHINGTON — Home loans granted to low-income and minority Americans rose sharply during the 1990s, the Treasury Department reported Wednesday.

But these groups still received far less than the share of mortgage loans that their numbers alone would grant them.

Banks, savings and loan associations, and other mortgage lenders made 1.7 million loans to residents of poor and moderate-income neighborhoods in 1998, a gain of 45% from the 1993 figure of 1.2 million. The volume of mortgage lending soared to $135 billion, a gain of 80% from the figure five years earlier.

The number of loans and the dollar value of credit rose significantly faster in these neighborhoods than in the overall national mortgage market, according to the report. The study tracks the progress of the Community Reinvestment Act, which requires financial institutions to play an active role as lenders in minority and low-income communities.

The federal government "must remain watchful to ensure that, as we modernize our financial system, it works for all Americans," President Clinton said in a statement accompanying the report. During negotiations last year on a bill allowing expanded mergers among financial companies, the administration insisted on retaining strong Community Reinvestment Act regulations in the banking law. The report also found significant growth in lending to minority borrowers. Loans to African American homeowners rose 76% during the five-year period among lenders covered by the law, and borrowing by Latino homeowners climbed 74%. Loans to whites rose 32% during the same period.

The improved results reflected both increases in minority household incomes and an aggressive effort by banking regulators and the Justice Department to ensure that financial institutions are providing a flow of credit to all segments of the community.

Although the growth rate was significant, it started from a low base. Minorities accounted for just 7% of all home loans in 1998-- higher than the 5% of 1993 but far short of the 27% of the population that was nonwhite or Latino.

Rep. Lucille Roybal-Allard (D-Los Angeles), chairwoman of the Congressional Hispanic Caucus, hailed the results as a positive step, saying they "demonstrate the success that is possible when we make a concerted effort to meet the needs of low-income communities."

In last year's financial modernization law, Congress included a provision calling for a study of effectiveness of the Community Reinvestment Act in stimulating lending for homes and businesses in low-income and minority neighborhoods.

Loans for home mortgages have "expanded dramatically to previously underserved communities," Treasury Secretary Lawrence Summers said in a preface to the report.

The goal of the act is to ensure a flow of credit both to poor people and to poor neighborhoods. The act, which dates to 1977, was passed to eliminate the policy of redlining, under which lenders would declare whole sections of a city off-limits.

Under the law, low-income individuals are those with income less than 50% of the median income in the area. A moderate-income household would have less than 80% of the area's median income.

A low- or moderate-income neighborhood is a census tract where the median family income is less than 80% of the family income in the metropolitan area. The national median income--half have less and half more--for families was about $39,000 last year. The Los Angeles-area median was about $34,000.